Cars are fast becoming necessities rather than luxuries. Owning a car could save you much more than you can imagine. Think about how much you would save from boarding public transport every day to work and back home, the dilemma of missing the next bus or train, and so on. A car can even serve as a source of income if you are okay with using it to run pick-ups and similar hustles. Yet because a car can be costly, this guide will show the different ways to fund your car purchase. Read on to find out more.
1. Using a personal loan
Personal loans are available from finance providers, cooperative societies, or banks. Loan approval may sometimes depend on your credit rating. There are also companies offering bad credit car loans. With personal loans, you can spread the payment duration between one and seven years. It is better not to put your house as collateral, though, to avoid repossession if you cannot keep up with repayment. Using personal loans to purchase a car is advantageous because you own the car right from the start of your loan and can use it for any purpose you want. It is probably the best and cheapest option next to paying with cash in terms of the total cost.
2. Buying with cash
Buying a car in cash is the simplest and easiest way, especially if you want to avoid taking loans. You get your car immediately as soon as you pay for it and it becomes all yours. You would not have to worry about loan repayments or owing to any debt. You also have the freedom of choosing what to do with the car and could even sell it off if your circumstances change. However, paying for a car with your hard-earned cash comes with other expenses like maintenance, insurance, road tax, etc., so ensure you have enough to cover all of these.
3. Credit scores:
If you cannot use cash to buy your car, you may decide to buy using credit. You can get a good deal if you have a good credit score. However, be careful not to get what your credit score allows but what you can afford instead. Do the necessary calculations and be sure you can make repayment as and when due.
4. Hire purchase:
This is a method of purchasing a car where you secure a loan against the car. This works by paying a deposit (usually 10%) and then a fixed amount monthly over an agreed and specified time. In this case, however, you do not own the car until you make the final payment. If you fail to make the complete payment within the specified time, you could lose the car. Hire purchases are often arrangements made with car dealers and the best rates come with new cars. A disadvantage of hire purchases, though, is that they tend to be more expensive for a short-term agreement.
5. Personal contract purchase (PCP)
A major difference between the PCP and hire purchase is that with the former, you have lower monthly payments compared to the latter. Although, the eventual total amount is higher with PCPs most of the time. With PCP, you get a loan based on the difference between the current brand-new price and the predicted price of the car by the hire agreement’s end. After the agreed duration of ownership, you can either have the car returned to the dealer, use the resale value to purchase a new vehicle, or pay the value for the resale and keep it.
6. Credit card
You could also use a credit card to pay all or part of the price of your next car. This will give you extra security if anything goes wrong. However, you must meet your monthly card payments. One drawback to using credit cards for purchase is that some dealers do not accept credit cards at all, while some could charge a handling fee of up to 3%. Additionally, the interest could be higher with credit cards. You would even be lucky to get 0% interest deals.
7. Peer-to-Peer loans:
Also known as social lending, this allows you to borrow from people without involving banks or other lenders. A good credit score remains a requirement for getting the best rates on peer-to-peer loans. Missed payments should also be avoided to maintain your crediting ratings. At times, peer-to-peer loans offer better interest rates than banks, although this is not always the case as interest rates also depend on credit scores.
Before making a final choice on which option you want to use to purchase your next car, ensure that you can afford the monthly payments not just at the moment but until the end of the agreement. Consider the cost of maintenance, tax, and insurance, too.